ING Australia, a division of the global financial giant, is slamming the door shut on expatriate Australians needing finance to buy property here, the second major international bank to cut credit to local borrowers in a week.
The Dutch bank will announce that from Monday none of the estimated 1 million Australians living overseas will be "considered eligible borrowers", despite strong demand from rich expatriates.
It follows a decision by the Australian division of Citibank, the global financial powerhouse, to hit the brakes on residential property lending amid growing fears about a housing slowdown and its impact on the broader economy.
ING, which does not lend to foreign property buyers, is believed to have quit the market because of the expense and complexity of verifying the source of borrowers' incomes.
The bank would not comment but confirmed it is happening.
ING loan applications received prior to Monday will still be assessed under the current guidelines.
The federal government has introduced tougher regulations and bigger penalties for lenders that breach lending regulations introduced in the wake of money laundering allegations.
There are more than 1 million Australians living overseas, which is four times the population of Hobart.
Falling dollar encouraging demand
Citi and ING are both major global banks with big footprints across the Asia-Pacific.
Their Australian mortgage banking operations are a minuscule part of their total local operations, typically less than 1 per cent, but a valued service and shop-window into other credit and financial service products.
Local mortgage brokers and buyers' agents claim there is strong top-end demand from ex-pat buyers, particularly for prestigious properties in Melbourne and Sydney.
Cashed-up buyers are making the most of the falling Australian dollar and weakening property prices to snap up trophy properties, particularly those costing more than $5 million.
Many are returning to Australia permanently, some are buying in anticipation of a return, while others are creating a base in Australia for education, or as a safe retreat.
Emma Bloom, a director of Morrell and Koren, a buyers' agent, said: "There are a lot of expats coming home – or preparing to come home – that are being encouraged by the low dollar to buy."
The $5 million-plus market is strong but tighter domestic bank lending for the $3 million to $5 million is slowing sales, she said.
Citibank is cutting drawdown lines of credit on home equity and increasing interest rates as it tightens lending criteria on both new and existing borrowers.
A spokesman said it follows a "regular review" of interest rates and makes changes "as market and economic conditions change".
Concerns of a slowdown
Citi has recently warned about a looming slowdown in the residential and commercial markets and its reverberations across the economy, particularly retail.
Both banks rely on mortgage brokers for the bulk of their distribution.
It means borrowers are effectively using their home loan as a line of credit to pay domestic bills or invest.
Under Citi's changes no new Mortgage Power credit lines will be offered, there will be no increases in the limits of existing line of credit accounts and no extension of the term, or the interest-only period.
Some 1.9 million investment properties could also come under pressure to be sold as speculators with multiple properties or nearing retirement rush to sell as prices slid.
Citi also warned the traditional response of investors to ride out a downturn was now less viable because of high debt levels, particularly investors aged in their 50s and 60s.
This could have a multiplier effect across the economy, particularly in retailing, which depends upon confident consumers.
Citi analysts warn the housing cycle has turned – which is evident from weekend residential mortgage clearance rates – but is yet to be reflected in earnings and multiples.
Other major lenders, such as CBA, said there is no change to its policy on lending to overseas Australians.
CBA has a maximum loan-to-value ratio of 95 per cent for locals living overseas and earning Australian dollars, or 80 per cent for Aussies living overseas and being paid in their chosen country's currency.
This article was published and provided by the Australian Financial Review